Tax Court Finds IRS Compliance Officer Liable for Civil Fraud Penalty (6/28/12)

Readers interested in the risks of being audited with respect to income tax noncompliance arising from foreign assets (particularly financial accounts) often ask what it takes for the IRS to prove fraud.  I am aware of no standard litmus test of civil tax fraud that will identify, particularly for laymen, when a court might find civil fraud.  However, decided cases can help set parameters from which, with enough cases, one might be able to make an educated guess as to when a court might find civil tax fraud.

We have one such case yesterday from the Tax Court.  Quinn v. Commissioner, T.C. Memo. 2012-178, here.

Ms. Quinn was an IRS tax compliance officer.  She claimed what appear to be such large charitable contributions ($48,000+ for 2 years) and medical deductions ($47,000+ for 2 years), that the IRS scoring techniques probably flagged her for audit.  She also claimed certain dependents that she was not entitled to claim.

The Court held that she was not able to substantiate her claims.  Not only that, her evidence in attempts to substantiate was bogus in some cases and highly suspicious in others.  For example, here is the Court's key discussion of the charitable contribution claims:

Petitioner proffered "receipts" purportedly confirming charitable contributions. They were inconsistent and unreliable. Representatives from seven different charitable organizations credibly testified that the receipts were altered or fabricated. For example, petitioner offered a receipt purportedly substantiating $12,500 of charitable contributions to a religious organization. The purported receipt, however, identified individuals other than the couple as the donors. The organization's records did not reflect any contributions made by the couple and confirmed that the other identified individuals had contributed $12,500. Other purported receipts also appeared to have been tampered with and were suspect. None of the organizations' records verified any charitable contributions the couple claimed for the years at issue. Nor did the couple's bank statements corroborate the amounts the couple claimed they contributed. Further, Mr. Quinn did not recall making any of the purported contributions. In each instance, petitioner failed to offer reliable substantiation. We therefore conclude that petitioner is not entitled to any deduction for claimed charitable contributions of $48,116 for the years at issue except the nominal amounts respondent conceded, which consisted of $175 for 2006 and $10 for 2007.

National Taxpayer Advocate Report to Congress (6/27/12)

The IRS has published the National Taxpayer Advocate Report to Congress (6/30/12), here.  Here are some excepts related to the NTA's issues with the IRS Offshore Voluntary Compliance initiatives (Report pp. 26 -29 (footnotes omitted)):

G.  TAS Will Continue to Advocate that the IRS Modify the Offshore Voluntary Disclosure Program so that People Who Made Honest Mistakes Can Correct them Without Fear of Excessive Penalties 

In the past few years, the IRS actively promoted the 2009 Offshore Voluntary Disclosure Program (OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (OVDI) . These initiatives allowed people who failed to file a Form TD F 90—22 .1, Report of Foreign Bank  and Financial Accounts (FBAR), reporting foreign accounts and the income from those accounts to settle with the IRS by paying a single “offshore” penalty instead of several other penalties that the IRS might seek to apply, including severe civil and criminal penalties designed for willful violators.  However, these initiatives were not promulgated through issuance of published guidance in the Internal Revenue Bulletin or even in the Internal Revenue Manual (IRM) .  Instead, the IRS published and then often updated and revised the terms of these initiatives on its website.   In the 2011 Annual Report to Congress, the National Taxpayer Advocate discussed her concerns about the “bait and switch” approach the IRS took in administering the 2009 OVDP and recommended several actions to restore IRS’s credibility among taxpayers and practitioners and promote fair tax administration based on the generally accepted concepts of due process, transparency, and procedural fairness.

Specifically, the IRS announced that “[U]nder no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes,” prompting those whose violations were not willful to enter the program.  On March 1, 2011, more than a year after the 2009 OVDP ended, the IRS issued a memo suggesting it would no longer consider whether a taxpayer would pay less under existing statutes .  Those with inadvertent violations could either agree to pay more than they should or “opt  out .”  Given the confusion surrounding what penalty would apply outside of the program, many agreed to the offshore penalty.  Continuing concern that the IRS may apply excessive penalties for inadvertent violations has generated public outrage among those with foreign accounts, such as U .S . citizens living in Canada. 

Wartime Suspension of Limitations Act and Tax Fraud (6/27/12)

I have previously written about 18 U.S.C. § 3287, the Wartime Suspension of Limitations Act ("WSLA"), here.  See Is the Criminal Statute of Limitations Suspended under the Wartime Suspension Act? (11/20/09), here.  The issue was whether the WSLA applied to any fraud against the U.S., particularly tax fraud, regardless of relationship to war or hostilities.

The statute currently provides in relevant part:

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544 (b)), the running of any statute of limitations applicable to any offense
(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or
(2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or
(3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war or directly connected with or related to the authorized use of the Armed Forces, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

The question I asked earlier is whether the portion earlier version of the WSLA which contained subsection (1) applied to any fraud against the U.S., particularly tax fraud.  I did not have any answer to the question.

IRS Websites on OVDP 2012 (6/27/12)

These are the key new webites:

2012 Offshore Voluntary Disclosure Program, here.

This is the key web site with links to the related web sites (including FAQs and various documents to submit.

Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, here.

Offshore Voluntary Disclosure Program Submission Requirements, here.

Options Available to Help Taxpayers With Offshore Interests, here.


JAT Comments:

IRS Announces Penalty Mitigation for Super Minnow US Taxpayers Living Abroad; RRSP (6/26/12)

See the announcement below, but first some links to further explain the relief:

See the IRS web page - New Filing Compliance Procedures for Non-Resident U.S. Taxpayers, here.  I include IR-2012-65 below which is a more general statement.

Per the website, more details will be forthcoming.

Comments:

1.  There are lots of open issues (see the comments that are already coming in with those open issues), but the trend is in the right direction.  And, in my view many classes of persons outside the current relief provisions are not distinguishable in terms of their U.S. tax compliance / noncompliance.  Hopefully, the IRS will give comparable relief to them.

2.  The most interesting is that the program is the grading of penalty potential according to compliance risk (emphasis supplied):

Description of proposed new procedure:While more details will be forthcoming, taxpayers utilizing the new procedure will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent FBARs for the past six years.  All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission.  For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.  Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Note, that this procedure is not part of the OVDP (I will return to this below).  Higher levels of risk do not qualify for the program and will be subject to audit (similar to opting out).  Note that taxpayers will a low compliance risk level, there will be no penalty.  Now, there's the key -- what exactly does low compliance risk mean, and would not most minnows fall in this category?  Perhaps there will be additional guidance on this.

IRS Announcement and FAQs re OVDP 2012 (6/26/12)

Issue Number:    IR-2012-64
Inside This Issue
________________________________________
IRS Says Offshore Effort Tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole

WASHINGTON — The Internal Revenue Service today announced that its offshore voluntary disclosure programs have exceeded the $5 billion mark and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements.

"We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore," said IRS Commissioner Doug Shulman. "People are finding it tougher and tougher to keep their assets hidden in offshore accounts."

Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.

The voluntary disclosure programs are part of a wider effort by the IRS to stop offshore tax evasion and ensure tax compliance. This includes beefed up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act (FATCA).

The IRS also closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal.

The IRS said that if the taxpayer fails to comply with this law and does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program (OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution.

Additional details of these eligibility issues are available in a new set of questions and answers released today on the current OVDP, which was announced in January (see IR-2012-5). The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.

This program – which helps bring people back into the tax system -- will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.

Under the current OVDP, the offshore penalty has been raised to 27.5 percent from 25 percent in the 2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still available.

The IRS also announced a plan to help U.S. citizens residing overseas to catch up with tax filing obligations and assistance for people with foreign retirement plan issues. See IR-2012-65 also issued today.

---------------

I have not yet seen the FAQs and will post information and links to them when I get them.

June 30 Filing Date for FBARs - Some Relief? (6/26/12)

The IRS has sent an email to a colleague which says:

FinCEN and the IRS are aware that June 30th falls on a Saturday this year, and therefore, the date by which FBARs must be received this year is a Saturday.  There is no plan to issue guidance formally altering the June 30th deadline.  Nevertheless, the IRS will take into account the fact that federal postal facilities and federal offices are often closed on Saturday and Sunday when determining whether individuals have timely fulfilled their  

FBAR filing requirements.   Filers unable to ensure that their FBAR filing is received before Saturday, June 30th, generally will face no adverse consequences if actual receipt is delayed until the following Monday by virtue of the nondelivery of mail over the weekend.

FBARs also can be e-filed:

http://www.fincen.gov/news_room/nr/html/20110717.html

http://bsaefiling.fincen.treas.gov/Enroll_Individual.html

Finally, although Section 7502's timely mailing time filing rule for tax forms does not apply to FBARs (Treasury forms) (see that section here), another colleague was advised orally by the IRS hotline that envelopes enclosing the FBARs postmarked that are postmarked by June 29 would not draw a penalty.  By analogy to the timely mailing timely filing rulse, for that informally identified rule to apply (if it even applies), the envelope would have to be properly addressed, would have to be received in the ordinary time for mail to get there, have a legible postmark, and received by the IRS.  Any FBAR filer wanting to  file by mail at this late date should consider using certified mail return receipt requested, obtaining and maintaining a stamped receipt from the IRS.  With that protection, even without the timely mailing time rule applying as a matter of law, the IRS would either act prudentially not to assert any penalty or, alternatively, I believe a court would find some way to reach that result if the IRS were to assert a material penalty.

Rendering Unto Caesar, Part 2: Other Clergy Fall (6/23/12)

I have previously discussed the tax crimes of Ronald Weinland, a pastor and self-proclaimed prophet.  See here.  Today, we have a new opinion involving other clergy.  In United States v. Jinwright, 683 F.3d 471 (4th Cir. 2012), here, the Fourth Circuit covers a lot of issues that are often presented in tax crimes prosecutions.  The facts are interesting, very interesting, and the discussion of the legal issues presented also interesting.

THE FACTS

1.  The Jinwrights, husband and wife, were "former co-pastors of Greater Salem Church in North Carolina."  They were convicted of "a tax evasion scheme" involving "millions of dollars of taxable income."

2.  The pattern of their conduct is summarized by the Court as follows:

When Mr. Jinwright first became pastor at GSC [Greater Salem Church], his salary was about $10,000. By 2001, his salary had increased to approximately $148,000. It reached about $300,000 by 2007. Between 2001 and 2007, GSC provided Mr. Jinwright with substantial benefits, in addition to his salary, that he underreported on his tax returns. He received housing allowances of between $130,000 and $160,000 per year, travel allowances of $19,000 to $48,000 per year, payments for his children's tuition and his federal income tax liability, and unlimited use of a luxury car leased by the church in addition to an annual vehicle allowance. Mr. Jinwright also received annual bonuses of $35,000 to $50,000, as well as separate Christmas bonuses. He had use of a GSC credit card and received reimbursements for purported business-related expenses that remained unsubstantiated. Taken together, Mr. Jinwright's total GSC compensation between 2001 and 2007 totaled nearly $3.9 million. During that time, Mrs. Jinwright received similar compensation from GSC in the form of salary, bonuses, allowances, and reimbursements, totaling nearly $1 million. 

The Jinwrights earned more income outside of GSC. Together they earned tens of thousands of dollars in additional income for speaking at other churches that they failed to report to the IRS. Mr. Jinwright established an organization known as A.L. Jinwright Ministries, Inc. (ALJM), purportedly to receive his income from outside speaking engagements. Mrs. Jinwright was responsible for handling ALJM's bank statements and providing the corporation's financial information to the Jinwrights' CPA. Although defendants kept the income earned through this business, GSC paid its operating expenses. Mr. Jinwright also founded the Pastors Consortium. The consortium, with a membership of other pastors, held annual events celebrating the anniversaries of the members' churches. During these celebrations the participants would exchange "gifts" to one another in the form of checks for thousands of dollars.

Treasury Announces Alternative Model for FATCA Implementaion with Switzerland (6/23/12)

Treasury has announced that it has reached an agreement with Switzerland for FATCA reporting with more robust exchange of information under the U.S. / Swiss Double Tax Treaty.  A similar agreement was reached with Japan, but I focus here on the agreement with Switzerland.  

The announcement, tiltled Department of Treasury Press Release, Treasury, Switzerland Agree to Pursue Framework for Cooperation for Implementing FATCA (6/12/12) is here.  The U.S. / Swiss Double Tax Treaty and Treasury Technical Explanation may be accessed here (the Exchange of Information provision is Article 26).  Here are the critical portions of the release.

The framework contemplated in the joint statement issued today represents a second model for an intergovernmental approach to improving tax compliance and implementing FATCA (Model II).   Model II establishes a framework of direct reporting by foreign financial institutions to the Internal Revenue Service (IRS), supplemented by information exchanged between the Swiss government and the United States government upon request. 

Previously, the Treasury Department jointly issued a statement with France, Germany, Italy, Spain and the United Kingdom expressing mutual intent to pursue a government-to-government framework for implementing FATCA.  The model contemplated in the prior joint statement (Model I)  differs from the model announced today in that it contemplates reporting by foreign financial institutions (FFIs) to  their respective governments, followed by the automatic exchange of this information with the United States.  Treasury, in consultation with the jurisdictions participating in the joint statement issued in February, has been developing a model agreement that will serve as the basis for bilateral agreements with countries interested in adopting the intergovernmental framework contemplated in Model I and aims to publish this model soon. 

Both intergovernmental models for implementing FATCA represent an important step toward addressing legal impediments to financial institutions’ ability to comply with the regulations.
The frameworks contemplated in the joint statements will serve as alternative models for the United States’ work with other countries, as Treasury officials continue to engage in discussions with foreign governments about the effective and efficient implementation of FATCA by their financial institutions.

Updated IRM on FBAR Penalties (6/22/12)

A reader just alerted me to  updated 4.26.7  Bank Secrecy Act Penalties, here.   I have not had the opportunity to go through the updates yet, but will as I have time.  The reader did call my attention to the definition of willfulness so I provide the first installment below.

1.  Definition of willfulness:

4.26.7.4.2  (06-20-2012)
Civil Willfulness 

Civil willfulness is established by evidence showing a voluntary intentional violation of a known legal duty. 

If a person does not know of that legal duty but it can be shown that the person made conscious efforts to avoid learning of the duty, willfulness may be imputed under the concept of "willful blindness" or "reckless disregard" .

This concept is elsewhere in the IRM.  See 4.26.16.4.5.3  (07-01-2008) FBAR Willfulness Penalty - Willfulness at par. 6), here:

Under the concept of "willful blindness" , willfulness may be attributed to a person who has made a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements. An example that might involve willful blindness would be a person who admits knowledge of and fails to answer a question concerning signature authority at foreign banks on Schedule B of his income tax return. This section of the return refers taxpayers to the instructions for Schedule B that provide further guidance on their responsibilities for reporting foreign bank accounts and discusses the duty to file Form 90-22.1. These resources indicate that the person could have learned of the filing and recordkeeping requirements quite easily. It is reasonable to assume that a person who has foreign bank accounts should read the information specified by the government in tax forms. The failure to follow-up on this knowledge and learn of the further reporting requirement as suggested on Schedule B may provide some evidence of willful blindness on the part of the person. For example, the failure to learn of the filing requirements coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved may lead to a conclusion that the violation was due to willful blindness. The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that the FBAR violation was attributable to willful blindness. 

The new IRM dealing with BSA penalties generally (of which FBAR is only one) omits this elaboration, but I suspect that it is subsumed in the new more succinct statement.

Is Israel the New Switzerland for U.S. Tax Compliance? (6/21/12)

We have been inundated  over the past few years with the DOJ Tax / IRS juggernaut against Swiss banks.  We have also previously reported that the IRS is targeting at least one Liechtenstein bank under the tax treaty.  See U.S. Targets Liechtenstein in Offshore Bank Tax Initiative (6/11/12), here.  There have been rumblings in the past about similar angst and action against Israeli banks.  

Now the reports about Israeli banks seem to be ramping up.  Consider this article:   Eamon Javers, New Indictment of Eamon Javers, Tax Shelters: Why Israel Could Be the Next Switzerland (CNBC 6/19/12), here. The article first discusses the indictment of the enablers we discussed  in an earlier blog:  U.S. Tax Return Preparers & Enablers re Offshore Bank & Related Activity (6/14/12), here.  Then the article moves to a broader discussion as follows:

Sources tell CNBC the new case is just the beginning of a potential series of indictments, which may snare some of the wealthy American clients who have hidden money in Israel, many for generations. That’s likely to be politically controversial, especially at a time when the U.S. and Israel are working closely together to contain a geopolitical threat from Iran.   

Add to that the political sensitivity of an Obama administration Department of Justice in an election year targeting a group of clients of whom many are likely to be Jewish or have historical family ties to Israel.   

“There are a substantial number of Americans with unreported assets in Israel,” said Scott Michel, a partner at the law firm Caplin & Drysdale who specializes in criminal tax fraud investigations. “I wouldn’t be surprised if it is on a par with Switzerland.” 

Rosenbloom Essay on Failure of Discourse between U.S. & Switzerland (6/20/12)

David Rosenbloom, here, of Caplin and Drysdale has published an interesting article in Tax Notes.  H. David Rosenbloom, Switzerland and the U.S.:  What We Have Here is a Failure to Communicate, 135 Tax Notes 1389 (June 11, 2012), here (published here with the permission of Tax Analysts).   Rosenbloom's point of departure is an apologia for Swiss banker's actions published by a Swiss law professor.   Peter Viktor Kunz, Roger Federer, Swiss Banking Will Both Come Back, (Bloomberg 4/30/12), here.  Professor Kunz's article begins with the statement (or complaint):  "Why is it, many Swiss are asking today, that the whole world seems to be out to get us?"  (Conjures in my mind the saying "I may be paranoid but that does not mean that they are not out to get me.")

Rosenbloom's essay is written in the context of the U.S. juggernaut first against UBS and then on an ongoing basis against U.S. taxpayers and persons, including Swiss banks and financial institutions, who enabled U.S. persons to evade or avoid U.S. tax by using Swiss financial accounts.  Rosenbloom directs the essay at "the apparently unyielding level of misunderstanding between the United States and Switzerland about the objectives and motivations of each country."  Rosenbloom notes his experience in the international tax area which gives him unique perspective to assess the dynamics of the U.S. and Swiss interactions.

Rosenbloom states the Swiss case as follows:

Switzerland's position is pretty clear -- or, to be fair, the position of a substantial portion of the Swiss population is pretty clear. On this view, the United States takes a moralistic view of taxation and sees Switzerland as a facilitator of tax fraud and evasion. The United States fails to appreciate the deeply felt Swiss respect for privacy. 

Further, Switzerland sees the United States as a bully and a law-breaker. Given the existence of the treaty, Switzerland cannot understand how or why the United States could bring criminal proceedings against UBS or resort to a summons enforcement action in U.S. district court, legal procedures wholly independent of the treaty's exchange of information provisions.

Rosenbloom states the U.S. case as follows:

Some Info on OVDP 2012 (6/19/12)

In a Tax Notes Today article, the author reviews recent discussion of the current iteration of the offshore voluntary disclosure program (referred to here as OVDP 2012).  Shamik Trivedi, IRS Official Previews Changes to FAQ for Offshore Voluntary Disclosure Program, 2012 TNT 118-1 (6/19/12).  The discussion occurred at the NYU annual Tax Controversy Forum in NYC.  I do not have the article to post but I do note key points that I have also confirmed from other sources:

1. The IRS will shortly release a new FAQ for guidance of the program after OVDI 2011.  Apparently it is now being called the offshore voluntary disclosure program ("OVDP").  For clarity, I refer to this as OVDP 2012.

2.  Apparently, there will be an 8-year rolling period for amended returns required by the FAQ.  I quote the article because, as I shall note, I am not sure I understand the point or, if I do understand the point, the logic of the point:

The upcoming FAQ will likely clarify the rolling eight-year period of returns due with the voluntary disclosure, said Jennifer Best, IRS senior attorney-adviser (services and enforcement), at New York University's annual Tax Controversy Forum in New York. "If the return is not yet due for a year, then that year is not included in the eight-year period," she said. The IRS also plans to clarify that compliant years' returns are not due as part of the disclosure, she said. 

Scott D. Michel of Caplin & Drysdale said one area of confusion for practitioners had been how far back returns were due for taxpayers who were new to the program. Best confirmed that under the proposed clarification, taxpayers who have not yet filed a 2011 return do not include their 2011 return as part of the eight-year period, but taxpayers who filed a "false" 2011 return in April and then came into the OVDP in June must include a 2011 return. 

I interpret the words to mean, for example, if a false 2011 return has been filed when the taxpayer joins OVDP 2012, say on June 25 (more or less contemporaneous with mailing of the FBAR for timely filing), then the 8 year period is from 2004 to 2011.  If the already filed 2011 return is not false (say the person was doing a "go-forward" but then changes his / her mind to join OVDP 2012, then the period is from 2003 to 2010.  However, if the return is on extension when the taxpayer files for OVDP 2012 and not yet filed (so that when filed it will not be false), then the period is from 2003 to 2011.  It seems to me that there can be some game playing there.  For example, if 2003 is the high year, the taxpayer would want to file a false 2011 return and then join the program.  There are some other strange results I can imagine, but maybe I just don't understand the comments are narrated in the article.  Perhaps readers can enlighten me.

Weinland Convicted Before the End of Times (6/17/12)

I have previously written on the prosecution of "doomsday prophet Ronald Weinland."  See blog posts on Weinland here.  The prophet Weinland was convicted on all counts of tax evasion, Section 7201.  See Jim Hannah, Doomsday prophet guilty of tax evasion (nky.com 6/12/12), here.

Comments:

1.  As reported (emphasis supplied):

Weinland’s defense attorneys told jurors during the eight-day trial that their client deposited church money in Swiss bank accounts because he believed society was in its “final days,” and that before Jesus Christ returns, the U.S. financial system would collapse. Weinland’s website claims the beginning of the end of earth as the human race knows it started on May 27 – just eight days before the start of the trial.

2.  Weinland was represented by Jone Cline, here, whose other "clients have included Oliver North and Scooter Libby."  For those unfamiliar with these other clients, see the Wikipedia entries on North, here, and on Libby, here.

Good Advice on Talking to Investigators - Fifth Amendment (6/16/12)

This applies equally to proffer sessions with U.S. attorneys who claim that your client is only a subject of the investigation.  (I assume that no attorney will venture in if the U.S. attorneys say that the client is a target.)

Swiss Bankers Are Worried Re Their U.S. Activity (6/16/12)

Swiss bankers are sufficiently worried about other countries' tax evasion probes, particularly the U.S.,  Bonnie Kavoussi, Swiss Bankers Are Afraid To Leave Switzerland (Huffington Post 6/15/12), here.  Some excerpts:

For many Swiss bankers, taking vacation out of the country is just too risky. 

As the U.S. cracks down on Swiss bank accounts and U.S. tax dodgers, even mid-level Swiss bankers fear arrest and extradition on charges of aiding tax evaders, Reuters reports. 

One Swiss banker was reportedly so worried about crossing the border to buy groceries in France that he called an advice hotline, Reuters reports.

The immediate fear, I suspect, is that there might be sealed indictments (or their equivalent) that would permit their arrest upon entry into the offended country (particularly the U.S.).

Usefulness of Government ESI Disclosures in Criminal Cases (6/16/12)

Readers might be interested in this guest blog at the White Collar Crime Prof Blog - Rochelle Reback, New Trial Ordered for ESI Discovery Violation - Electronic Evidence Must be Usable (6/6/2012), here.  She provides a succinct summary of the issue with electronically stored information ("ESI") and a recent decision in United States v. Stirling (SD FL No. 11-20792-CR-Altonaga), here.


I have previously discussed some issues related to mass document dumps, including in electronic format.   See, The Mass Document Dump and the Prosecutors' Brady Obligations (2/11/11), here, and Brady and Third Party Records / Databases (8/20/11), here.

New Indictment of U.S. Tax Return Preparers & Enablers re Offshore Bank & Related Activity (6/14/12)

In a First Superseding Indictment, here, filed June 14, 2012 in CD CA, three principals of a tax return preparation service, United Revenue Service ("URS") were indicted.  The DOJ Tax Press Release is here.

URS operated in several states under variations of the name URS.  The individuals include David Kalai and Nadav Kalai, who are Israeli citizens who subsequently became naturalized U.S. citizens.  Another defendant is Advid Almog, also an Israeli citizen who was a U.S. permanent resident alien.  A tax return preparer identified as "R.S." is named as an unindicted co-conspirator.  Various clients are identified with initials in the indictment.

The charge is the ubiqitous Klein conspiracy, 18 USC 371, to impair or impede the lawful functions of the IRS.  (See par. 20.)

Interesting allegations are:

12.  Bank A was a large financial institution headquartered in Tel-Aviv, Israel. Bank A currently describes itself as maintaining a "premier position in the world of international private banking11 with private bankers who will be a customer's "loyal and discreet consultant." Bank A currently advertises that it has "more than 336 branches and representations across 18 countries worldwide, including banking operations in Luxembourg (hereinafter "Bank A Luxembourg"). 

13. Bank B was a mid-size financial institution headquartered in Tel-Aviv, Israel. Bank B offered private banking services it currently describes as being tailored to a customer's "preferred communications channels and information"  while "maintaining total discretion." Bank B advertises a "worldwide presence on four continents through subsidiaries, branches, and representative offices," including a branch of its Swiss ba,nking operations located in Luxembourg (hereinafter "Bank B Swit.zerland-Luxembourg Branch") .

Order Requiring Production of Required Records (6/14/12)

This is a follow through on the Ninth Circuit's holding in M.H. v. United States (In re Grand Jury Investigation M.H.), 648 F.3d 1067 (9th Cir. 2011), here.  My prior blog on that holding is 9th Circuit Applies Required Records Doctrine to Defeat 5th Amendment Claim for FBAR Recordkeeping (8/19/11), here.

On remand, the district judge entered an order of compulsion and contempt against M.H.  The order was issued under seal on December 6, 2011.  The now unsealed and redacted order is here.  The gravamen ot the order is:

1.  M.H. is required to produce the required records.  The records that M.H. can obtain from the Swiss Bank (UEB) are in M.H.'s constructive posssession.  M.H. must therefore produce them -- i.e., since M.H. did not have them when the subpoena was issued, M.H. must get them.  Otherwise he (or she) is in contempt of the grand jury and will be confined.

2.  M.H. must produce the records of his proceeding in Switzerland to try to prevent the Swiss Government from responding to a request for his (or her) bank records.  Technically, this came in an order requiring compliance with 18 U.S.C. § 3506.  [For other discussion of that section, see here.]  The court has a straight-forward application of the "Act of Production" doctrine and the related "foregone conclusion" concept.

I may have more on this when I have time.

BDO USA Enters Deferred Prosecution Agreement; to Pay $50MM (6/13/12)

The web news reports that BDO USA, formerly BDO Seidman LLP, has agreed to a deferred prosecution agreement and will pay $50,000,000 for its conduct with respect to tax shelters, including the ones hawked by Paul Daugerdas and enabled by BDO USA.  Michael Cohn, BDO to Pay $50M for Tax Shelter Violations (Accounting Today 6/13/12), here; Dena Aubin, BDO to pay $50 million in tax shelter case (Reuters 6/13/12), here.  A cut and paste from the Accounting today article is:

The firm, formerly known as BDO Seidman LLP, did not register various tax shelters as required by law. The IRS said some of the tax shelters were abusive and fraudulent, and the firm did not register them in an effort to conceal the tax shelters from the IRS and help high-income taxpayers evade federal income taxes.

The $34.4 million penalty is part of a $50 million payment that BDO has agreed to pay the United States in connection with the filing of an Information charging the firm with one count of engaging in a tax fraud conspiracy from approximately 1997 to 2003, and a deferred prosecution agreement with the United States for the criminal charge if specific conditions are met. The $15.6 million portion will be paid to the Justice Department.

In addition to the civil penalty payment, BDO has agreed to cooperate with the IRS in civil matters, including IRS audits and litigations relating to its tax shelter products, and to work with the IRS to ensure that it is in compliance with federal tax laws involving tax shelters.

* * * *

Fourth Circuit Affirms Conviction Involving Foreign Bank Accounts (6/12/12)

In United States v. Hamelink, ___ 2012 U.S. LEXIS ___ (2012), here, a per curiam nonprecedential opinion, the Fourth Circuit affirmed a conviction for one count of conspiracy to defraud (Klein conspiracy).  The defendant was sentenced to 27 months, at the low end of the Guidelines range of 27-33 months.  He could have been sentenced to 60 months for the count of conviction.

The defendant's attorney filed an Anders brief, Anders v. California, 386 U.S. 738 (1967), saying essentially that "she has found no meritorious issues, but questions the constitutionality of the sentencing enhancement Hamelink received for the amount of tax loss."  The following is from the opinion (emphasis supplied by JAT):

At his guilty plea hearing, Hamelink admitted that, despite earning substantial income from his business, he failed to file any income tax returns.  Hamelink also admitted that he had taken a variety of steps to conceal his income and assets from the IRS, including the use of bogus trusts, nominee entities, and related domestic and foreign bank accounts.  In the plea agreement, Hamelink stipulated that the amount of tax loss known, or reasonably foreseeable, to him was more than $1 million but less than $2.5 million, and that the base offense level was 22. 

The Court summarily found no basis for reversal and affirmed, with standard language on counsel's responsibilities under Anders.

It is unclear whether this case arose from the offshore initiative.  The standard plea offer at least in the early stages of the offshore initiative was to one plea for an FBAR violation or one plea of tax perjury.  Nonetheless, use of offshore accounts was one of the acts having a tendency to impair or impede the functions of the IRS.

I will try to post an update on the spreadsheet with the information on this conviction later this morning.

U.S. Targets Liechtenstein in Offshore Bank Tax Initiative (6/11/12)

A recent article discusses the U.S. focus on Liechtenstein banks.  Dylan Griffiths, Liechtenstein Informs Bank Clients of U.S. Tax-Evasion Request (BloombergBusinessWeek 6/10/12), here.  Here are a some excerpts:

Liechtenstein, an Alpine country of 36,000 people, has told American clients of the principality’s oldest bank that U.S. authorities have requested their account data as they widen a tax-evasion probe. 

Accounts at Liechtensteinische Landesbank AG (LLB) that contained at least $500,000 at any time since the beginning of 2004 are covered by the information request, according to a May 30 letter sent to a client by the principality’s tax authority. Liechtenstein facilitated the so-called group request from the U.S. by amending a tax law in March. 

 * * * * 

“The ruling to extend the period of applicability back to the tax year 2001 in the administrative assistance law with the U.S. is limited to 12 months from the date it comes into force,” said Sele. It “is closely linked to the ongoing U.S. offshore voluntary disclosure program."

* * * * 

In the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional “asset protection,” who “conspired with a U.S. taxpayer to commit U.S. crimes or provided assistance,” according to the letter.

Article on Israeli Banks as Targets in Tax Probe (6/8/12)

Asher Rubinstein, bio here, and a Julie Otten, an associate in Asher's firm, have written an article on the Government targeting Israeli banks, Asher Rubinstein, Esq. and Julie Otton, The Next Wave of IRS Offshore Account Enforcement: Israeli Banks Under Scrutiny (Ribinstein & Rubinstein LLP web site), here.  Here are a few items I cut and paste to whet readers' interest:

[T]he criminal tax division of the U.S. Department of Justice (DOJ) have now focused attention on three of Israel's biggest banks: Bank Leumi Le-Israel, Bank Hapoalim and Mizrahi-Tefahot Bank, to see if they helped U.S. citizens to evade taxes. 

* * * * 

The IRS is now scrutinizing banks outside of Switzerland, including Liechtenstein, India and other countries. In the case of Israeli banks, American authorities are concerned with the flow of non-compliant money from Switzerland to Israel in recent years. As Swiss banking secrecy faded over the past few years, and the U.S. extracted once-"secret" Swiss account details, many taxpayers transferred assets from Switzerland to Israel to avoid detection by the I.R.S. Now, the IRS has caught up with them.  

* * * * 

Whereas until recently, Swiss bank secrecy laws presented a formidable challenge to the IRS, pursuing undisclosed accounts in Israel will not require nearly as much effort. The tax treaty between the U.S. and Israel enables both countries to "exchange such information as is pertinent to . . . fraud or fiscal evasion in relation to the taxes which are the subject of this Convention." Cooperation between the U.S. and Israel is routine in many matters, tax and otherwise. In addition, the U.S. and Israel currently grant legal assistance to each other in criminal matters via a Mutual Legal Assistance Treaty (MLAT). The MLAT states that the U.S. and Israel "express their understanding that this treaty applies to . . . criminal tax offenses . . . ." It is noteworthy that the treaty provides for the exchange of bank records.

Burden on Government to Prove Willfulness in FBAR Matters (6/8/12)

Steven Toscher, bio here, a well-known player in the field, and his associate, Lacey Strachan, bio here, have published an excellent article on the requirement that the Government prove willfulness in criminal and civil FBAR penalty cases.  Steve Toscher and Lacey Strachan, Proving Willfulness in an FBAR Case, Journal of Tax Practice and Procedure (April - May 2012), here.

The article is excellent.

Addendum on 6/8/12 at 6:07 pm:

Here are my quick comments on the article:

1.  The authors note that, in all cases, the Government must prove willfulness which is the voluntary intentional violation of a known legal duty.  This is the same standard in a criminal context for the traditional federal tax crimes and for proving fraud in a civil income tax context.  There are some who think there might be a relaxed definition of willfulness in a civil case, but I think it is basically the same definition except that the burden of proof is more stringent in a criminal case.

2.  In the criminal cases, that proof of willfulness must be beyond a reasonable doubt.  The law is not certain as to the level of proof in a civil case.  The issue is whether the Government must prove willfulness by a preponderance of the evidence (i.e., just more likely than not, say 51%) or by clear and convincing evidence (say 65-80%).  I have discussed this issue in prior blogs, the most pertinent of which is Burden of Proof for Willfulness in FBAR Violations (9/6/11), here.  The authors correctly note that the only case directly addressing the issue, a trial level opinion in Williams (currently on Government appeal to the Fourth Circuit), the district court said it was applying the preponderance of the evidence standard, but it held against the Government so the standard of proof was not critical to its holding (i.e., the Government would lose whichever standard it applied).  I personally think that dictum holding  is wrong on that issue, but that is just my opinion. See my blog discussion.

Rettig Article on OVDI 2012 (6/7/12)

Charles P. Rettig, here, has produced another worthy read.  Charles P. Rettig, The 2012 IRS Offshore Voluntary Disclosure Initiative (Journal of Tax Practice and Procedure (February-March 2012), here.  I apologize to readers for the overdue posting.

The article is mostly a review of the history of the offshore initiative with a peek into where it is going.  Excerpts from the peek into the future are (emphasis supplied in bold by JAT):

Since the 2012 OVDI asserts an offshore penalty based on foreign financial accounts and asset valuations, for many with smaller financial account values the aggregate offshore penalty determination, even for multiple years, may likely be less outside the OVDI. Indications are that those opting out will be treated fairly, based upon any unique factual scenario. For those participating in the OVDI, is an “opt out” based on a unique factual scenario a viable alternative to the OVDI? 

There are rumors regarding ongoing “John Doe” summons activity seeking to force foreign financial institutions to deliver account-holder information to the U.S. government as well as possible indictments of foreign financial institutions. Recently, several foreign institutions have advised their account holders to consult U.S. tax advisors regarding the IRS offshore voluntary disclosure program and their U.S. tax reporting relating to their foreign financial accounts. It is reasonable to assume that such institutions will take whatever action is necessary to avoid being indicted, beginning with the delivery of information regarding account holders to the U.S. government.

Daugerdas and Others, But Not All, Get New Trial (6/4/12; revised 6/22/12)

See Bob Van Voris, Juror Lies Trigger New Trial For Three In Tax-Fraud Case (Bloomberg 6/4/12), here.  The order is here.

The gravamen of the holding is that a juror, referred to as Conrad, misbehaved so egregiously that the Court could not have confidence in the verdict.

Here is the Conclusion:

CONCLUSION 

Oaths are sacred and their origins ancient. They acted as a self-curse, and those who swore to one believed dire consequences flowed from its violation. That belief undergirded the oath's effectiveness and validated its purpose. See Helen Silving, The Oath: I (The Historical Evolution of the Judicial Oath in Various Legal Systems), 68 Yale L. J. 1329, 1335 (1959). Today, the need to punish perjurers-through contempt proceedings, criminal prosecutions, or both-is no less acute. While the decision to prosecute Conrad for perjury is not this Court's, the Government should have a strong incentive to punish such conduct and deter others. The prospect of preserving a tainted jury verdict should not temper the Government's resolve to call Conrad to account for her egregious conduct.

Jury selection is integral to the organization of a triaL As officers of the court, attorneys share responsibility with a judge to ensure the integrity of the proceedings. In this respect, counsel and the court are joint venturers. An attorney's duty to inform the court about suspected juror misconduct trumps all other professional obligations, including those owed a client. Any reluctance to disclose this information-even if it might jeopardize a client's a position be squared with the duty of candor owed to the tribunal.

DOJ Tax Promo Piece to House Oversight Subcommittee (6/1/12)

Kathryn Keneally, the recently anointed AAG Tax, has promoted the Tax Division's efforts and accomplishments before a House subcommittee on oversight.  See Statement of Kathryn Keneally, Assistant Attorney General, Tax Division, before the Subcommittee on Courts, Commercial and administrative Law Committee on Judiciary, U.S. House of Representatives, Regarding Oversight of the Tax Division (May 31, 2012), here.

Here are excerpts related to criminal tax matters that are the focus of this blog:

Tax Division prosecutors authorize and prosecute cases after determining that there is a reasonable probability of conviction based on the existence of sufficient admissible evidence to prove all of the elements of the offense charged.  

 * * * * 

Criminal Investigation and Prosecution 

Criminal Trial In addition to our extensive civil practice, the Tax Division authorizes all prosecutions arising under the federal tax laws except for excise taxes and criminal disclosure violations. In most cases, Division attorneys either conduct or supervise these prosecutions, often in partnership with prosecutors from the United States Attorneys' Offices. The Division's twin criminal goals are to prosecute criminal tax violations and to promote uniform nationwide criminal tax enforcement. In many cases, the Tax Division receives requests from the IRS to prosecute violations after the IRS has completed an administrative investigation. In other cases, the IRS asks the Tax Division to authorize grand jury investigations to determine whether prosecutable tax crimes have occurred. Tax Division prosecutors review, analyze, and evaluate referrals to ensure that uniform standards of prosecution are applied to taxpayers across the country. In the past few years, the Division has authorized between 1,300 and 1,800 criminal tax investigations and prosecutions each year. After tax charges are authorized, cases are handled by a United States Attorney's Office, by a Tax Division prosecutor, or by a team of prosecutors from both. Tax Division prosecutors also conduct training for IRS criminal investigators and Assistant United States Attorneys, and provide advice to other federal law enforcement personnel, such as the DEA and the FBI.

The crimes investigated and prosecuted by the Tax Division include attempts to evade tax, willful failure to file returns, and submission of false returns, as well as other conduct designed to violate federal tax laws. The crimes may be committed by individuals, business entities, or tax preparers and professionals. These cases often encompass tax crimes where the source of the individual or business income is earned through legitimate means -- as examples, a restaurateur who skims cash receipts; a self-employed individual who hides taxable income or inflates deductions; or a corporation that maintains two sets of books, one reporting its true gross receipts and the other -- used for tax purposes -- showing lower amounts. Prosecutions in these cases often receive substantial attention in the local and national media, and convictions remind law-abiding citizens who pay their taxes that those who cheat will be punished.